On May 9, we upgraded
), a leading player in the diagnostic testing market, to Neutral.
In spite of disappointing first-quarter 2013 results, we are
optimistic about the company's recently adopted restructuring
initiative as well as its focus on high potential areas such as
core diagnostic information services.
Why the Upgrade?
Quest Diagnostics reported dismal results for the first
quarter of 2013, missing the Zacks Consensus Estimate on both
lines. Adjusted earnings per share (EPS) were 89 cents, down
15.3% year over year.Sales declined 6.4%, with a 6.7% drop in
diagnostic information services revenues. The current market
environment remained challenging in the form of commercial
pricing pressures and Medicare cuts. We are also concerned with
the overall soft industry trends leading to volume pressure. This
was reflected in the conservative 2013 outlook.
However, the weak performance in the quarter has not deterred
Quest Diagnostics' focus on areas with high potential such as
gene-based esoteric testing for cancer, cardiovascular disease,
infectious disease and neurological disorders. As a part of this
strategy, earlier in Apr 13, Quest completed the divesture of
HemoCue diagnostics products business. Moreover, last December,
the company shed its OralDNA Labs salivary-diagnostics business
in order to refocus its resources toward core diagnostic
information services. We also hold a favorable view regarding
Quest Diagnostics' recently implemented major organizational
restructuring in order to increase operational efficiency and
restore growth. We assume all these endeavors could very well
turn around the company's fortunes going ahead. The company now
carries a Zacks Rank #3 (Hold).
Med-Tech Stocks That Warrant a Look
While we prefer to avoid Quest Diagnostics until we see signs
of improvement in the company's performance, other medical device
stocks worth a look are
VCA Antech Inc.
). All are Zacks Rank #1 (Strong Buy) stocks.
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